Betsy DeVos’s Department of Education plans to rescind a controversial Obama-era rule aimed at protecting students from career training programs that fail to prepare students for decent paying jobs and saddle them with debt.

The Department released a document Friday outlining a proposal to scrap the gainful employment regulations. The rules, developed under the Obama administration required all programs that explicitly prepare students for careers — such as cosmetology and culinary training programs — prove that graduates were earning enough to repay the debt they incurred to complete the program. Many of these programs are at for-profit colleges. Programs that failed this test repeatedly could lose access to federal financial-aid dollars, a major source of revenue for many colleges.

The proposal is the latest effort by DeVos’s Department of Education to overhaul the Obama-era student-loan agenda. Officials announced major changes to another regulation last month aimed at making borrowers whole who say they’ve been defrauded by their colleges. Friday’s announcement also comes after a series of efforts to delay implementation of the gainful employment rule.

“Instead of targeting schools simply by their tax status, this administration is working to ensure students have transparent, meaningful information about all colleges and all programs,” DeVos said in a statement announcing the proposal. “Our new approach will aid students across all sectors of higher education and improve accountability.”

Borrower advocates roundly derided the proposal saying it would put students at risk of taking on debt to enroll in programs that don’t serve them well. “It’s really a common sense regulation that not only protects students and guarantees that they can get jobs that allows them to pay back their loans, but protects the taxpayer,” said Aaron Ament, the president of the National Student Legal Defense Network, a litigation and advocacy organization.

Officials first began developing the regulations in the early years of the Obama administration. The rules faced multiple court challenges by the for-profit college industry before becoming law. Under the final rule, career training programs are required to prove that their graduates’ loan payments don’t exceed 20% of their discretionary income or 8% of their total earnings. Programs that didn’t meet those requirements for two out of three years would lose access to federal financial-aid dollars.

In the memo released Friday, officials proposed scrapping that debt-to-earnings ratio and the accountability requirements that went with it. In its place, they plan to add more robust program-level information to the College Scorecard, a government website students and families can use to compare colleges. The document also asks the public to provide feedback on whether programs at these types of colleges should be required to provide information such as cost and completion rates on its website.

Those provisions appear to assuage critics who said the regulation unfairly targeted the for-profit sector. Steve Gunderson the president of Career Education Colleges and Universities, a for-profit college trade group, called the proposal “the most significant action” by any Department of Education to provide transparency on higher education outcomes.

“By making available, in a student-friendly and transparent manner, key data points on debt, loan repayment, completion, and earnings of graduates, the Department will empower prospective students with the information needed to select their preferred academic and career preparation pathway,” Gunderson said in a statement.

But borrower advocates argue that simply providing more information to students won’t actually push bad-acting programs to change their behavior. During the first year the Department released outcomes under the gainful employment rule, more than 800 programs failed. Already, some of those programs have shut down or are re-accessing their offerings.

“You can’t expect the data to just all of the sudden drive these decisions because students have to be able to find the data, understand the data and make choices about it,” said Ben Miller, the senior director of postsecondary education at the Center for American Progress, a left-leaning think tank. What’s more, an approach that emphasizes only making more data available, “assumes that you don’t have substantial sophisticated marketing occupations on the other side,” he added.

The for-profit college industry has a history of using questionable marketing tactics

And, indeed, the for-profit college industry has a history of using questionable marketing tactics to draw students and their student loan dollars. Corinthian Colleges, a major for-profit college chain collapsed in 2015, amid allegations the school used inflated job placement and graduation rates to lure students. ITT Technical Institutes filed for bankruptcy a year later under the weight of similar allegations.

Borrower advocates have argued that rules like gainful employment can prevent these types of large scale flame outs — and the taxpayer losses that come with them — by policing poor performing programs before they reach too many students. The document released by the Department Friday estimates that repealing the gainful employment regulation would cost $5.3 billion because the government would be doling out more in federal-aid dollars to students to attend schools that would otherwise be ineligible for them.

In the past, the for-profit college industry has argued that one of the major reasons its outcomes may not hold up to metrics measured by rules like gainful employment is because they educate students who have historically been underserved by other colleges and who may not earn as much in the job market.

The memo released Friday picks up on that rationale and argues the debt-to-earnings ratio is flawed in other ways, but it doesn’t truly wrestle with the best way to measure whether a program is preparing students for gainful employment, Miller said. “It was a giveaway to places that leave their grads with way too much debt compared to their earnings and students will suffer as a result,” he said.

It’s too early to tell whether the proposal released Friday will become law. In the meantime, critics have accused the Department of Education of not enforcing the law currently on the books; the agency has yet to release the second year of school outcomes under the rule.

The public will have a period to comment on the new proposed regulation and then the Department will issue a final rule. At that point, legal advocates and states attorneys general will be looking closely to see whether the Department has violated any laws in promulgating the new regulation, said Ament, who previously worked on for-profit college issues in various positions in the Obama administration.

“I anticipate if they continue along this path you’ll see several challenges,” he said.

Get a daily roundup of the top reads in personal finance delivered to your inbox. Subscribe to MarketWatch's free Personal Finance Daily newsletter. Sign up here.

Jillian
Berman

Jillian Berman covers student debt and millennial finance. You can follow her on Twitter @JillianBerman.

Intraday Data provided by SIX Financial Information and subject to terms of use. Historical and current end-of-day data provided by SIX Financial Information. All quotes are in local exchange time. Real-time last sale data for U.S. stock quotes reflect trades reported through Nasdaq only. Intraday data delayed at least 15 minutes or per exchange requirements.